The Mighty May Be Falling

You could have made a lot of money in recent years by investing in either New York City hotels or timeshare development. Both of these segments of the hospitality business were thought to be, and rightly so, bulletproof to the prevailing winds blowing through the industry and the general economy. Upscale and luxury Manhattan hotels have had occupancies above 80 percent for years and rates have climbed into stratospheric regions (Have you tried to book a last-minute room in the Big Apple lately?). Likewise, the timeshare industry has posted double-digit sales growth every year for as long as anyone can remember. The vacation ownership business never even missed a beat following 9/11.

That's all changed, and both the New York lodging community and the timeshare business are facing tough times for reasons that overlap and diverge. Manhattan occupancies in the first couple weeks of October—typically one of the biggest months—were down by more than 10 percent. To make matters worse, city government is talking about raising the room tax by as much as three percentage points to a whopping 18 percent. Likewise, timeshare tours and sales for most companies and markets have dwindled to a trickle. Westgate Resorts, one of the largest in the field, has already laid off several hundred workers and closed its Houston sales gallery.

Naturally, the economy is affecting both segments of the business. Fewer consumers, even those who considered themselves on Easy Street this time last year, have the dough to blow $900 a night on a hotel room in New York or the $20,000-plus it costs for a prime timeshare week in a branded property. In New York, the problem is compounded by the value of the dollar, which now favors Europeans less than it has for most of this decade. Add to that the near-total collapse of the financial services industry, and it's easy to see why demand is down and will probably continue to sink in '09.

For timeshare, the other bugaboo is the credit mess. The lock-up of the credit market hurts timeshare in two distinct and fatal ways: It's harder for consumers to meet the tightening credit standards necessary to qualify for loans to buy vacation intervals, and timeshare companies make a lot of their money by bundling loans and selling them to third-party servicers, a business that's nearly dried up for the time being.

Unless something drastic happens, 2009 will be tough for both New York and timeshare, but I'm confident both will rebound quickly and ahead of the rest of the hospitality industry once the general economy swings back into life.